Thursday 26 August 1993

Community Economic Development Act, 1993, Bill 40

City of Thunder Bay

David Hamilton, mayor

Dick Charbonneau, general manager, economic development corporation

Community Opportunities Development Association

Paul Born, executive director

FRIDA Craft Stores

Susan Bellan, general manager


*Chair / Président: Brown, Michael A. (Algoma-Manitoulin L)

*Vice-Chair / Vice-Président: Daigeler, Hans (Nepean L)

Arnott, Ted (Wellington PC)

Dadamo, George (Windsor-Sandwich ND)

Fletcher, Derek (Guelph ND)

*Grandmaître, Bernard (Ottawa East/-Est L)

*Johnson, David (Don Mills PC)

*Mammoliti, George (Yorkview ND)

Morrow, Mark (Wentworth East/-Est ND)

Sorbara, Gregory S. (York Centre L)

Wessenger, Paul (Simcoe Centre ND)

*White, Drummond (Durham Centre ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Cordiano, Joseph (Lawrence L) for Mr Sorbara

Haeck, Christel (St Catharines-Brock ND) for Mr Morrow

Hope, Randy R. (Chatham-Kent ND) for Mr Dadamo

Jackson, Cameron (Burlington South/-Sud PC) for Mr Arnott

Jamison, Norm (Norfolk ND) for Mr Fletcher

Wiseman, Jim (Durham West/-Ouest ND) for Mr Wessenger

Also taking part / Autres participants et participantes:

Ministry of Municipal Affairs:

Melnyk, Tania M., director, community development branch

White, Drummond, parliamentary assistant to the minister

Clerk / Greffier: Carrozza, Franco

Staff / Personnel: Anderson, Anne, research officer, Legislative Research Service

The committee met at 1007 in the Humber Room, Macdonald Block, Toronto.


Consideration of Bill 40, An Act to stimulate Economic Development through the Creation of Community Economic Development Corporations and through certain amendments to the Education Act, the Municipal Act, the Planning Act and the Parkway Belt Planning and Development Act / Loi visant à stimuler le développement économique grâce à la création de sociétés de développement économique communautaire et à certaines modifications apportées à la Loi sur l'éducation, à la Loi sur les municipalités, à la Loi sur l'aménagement du territoire et à la Loi sur la planification et l'aménagement d'une ceinture de promenade.

The Chair (Mr Mike Brown): The standing committee on general government will come to order. The business of the committee today is to deal with Bill 40, the Community Economic Development Act.

The first thing I would like to do is to bring to the attention of members that we do have an interim summary from our researcher, Anne Anderson. You should all have one before you so you will have an opportunity to study that over the weekend before we start with further public input next Tuesday.


The Chair: Our first deputation this morning is from the mayor of the fine city of Thunder Bay, David Hamilton.

I would point out to members that this is not exactly the same as the agenda before you. The first presentation this morning has indicated to the clerk that it will not be appearing.

Good morning, your worship. We've allocated one half-hour for your presentation. We always appreciate some time to ask some questions of clarification and otherwise following your formal presentation. You may introduce yourself and your colleague for the purposes of Hansard, and begin.

Mr David Hamilton: Thank you very much, and good morning, Mr Chairman, members of the committee, staff. With me today is Dick Charbonneau, general manager of the economic development corporation in the city of Thunder Bay, the founding manager and the man who's been in charge of the organization for the 10 years that it has existed.

We have a presentation formally that we'd like to read to you this morning. We have handed the proper copies to the clerk and they've been distributed so you can follow through it. We're quite open to questions after the presentation.

Normally, both of us would not have been able to travel to Toronto for this important committee meeting on a very important initiative as we struggle to develop the economy of Ontario, but I was at the annual meeting of the Association of Municipalities of Ontario in Hamilton, which I'm sure many of you are aware of or dropped by to be a part of; over 750 delegates there.

Mr Charbonneau has been invited to assist on a committee called Clearing the Path, which is being held under Minister Frances Lankin. We're not sure what path Dick's going to be clearing, but we'll find out as soon as he's been at the meeting. So we're both happy to be in Toronto and we're glad to be here this morning.

Good morning. My name is David Hamilton. On behalf of my city council colleagues I would like to thank the standing committee on general government for this opportunity to discuss the proposed Bill 40, the Community Economic Development Act, 1993. As a representative of the local or community level of government in this province, I feel that it is essential that municipalities in Ontario have meaningful input into this proposed new government initiative.

While I am not aware of how many of my local government colleagues will be sharing this opportunity to meet with the standing committee, I would mention that I propose to circulate copies of my presentation to my fellow mayors and reeves throughout northwestern Ontario. I am sure the committee would also welcome their comments as well.

These are challenging times for governments at all levels. The recent sharp and prolonged recession compounded with the negative effects of the massive economic restructuring already under way in our province. We are all familiar with the scope of the problems: record levels of unemployment, continuing growth in social assistance program costs, shrinking revenues and huge deficits.

At the municipal level, our historical record of fiscal prudence has apparently prompted senior governments to shift more and more of their financial problems to the local property taxpayer: by downloading programs; by reducing long-established formulas for grants and contributions; by imposing new and expensive regulatory measures -- some notable examples include waste management and employment equity; by imposing increased operating costs through new tax measures; and by reducing net business and net disposable personal incomes through increased taxation and new or increased user charges.

With this ongoing restructuring of our economy and the so-called jobless recovery, all levels of government have finally discovered the harsh limits on our ability to stimulate economic growth through traditional monetary or fiscal policy. Our conventional tools are simply inadequate for the job at hand. We have learned that we can't spend our way to prosperity. We can't tackle the problems of today or pursue the goals of tomorrow with the policies and programs of yesterday.

More importantly, all levels of government are becoming painfully aware that our shared economic goals of increased basic job creation or retention, as well as the assimilation of new technology, must be market-driven and led by the private sector. While the public sector can clear the path and support or facilitate new private investment, ultimately governments simply lack the resources to generate or sustain new long-term employment creation or new technological development at the scale imposed by the new economic realities.

Governments must become more innovative to stimulate economic growth. The public sector can become a partner in nurturing a new entrepreneurial culture and revitalizing our business environment. We can and must make it easier to do business, we can and must make our province and our communities more attractive to investors, and we can and must improve our efficiency in dealing with the private sector.

Finally, in my opinion, governments at all levels are not capable of leading the way to the new economic order. This can only be achieved by the risk-takers and the stakeholders emerging within or attracted to our communities.

An overview of the new act: The proposed new Community Economic Development Act is described as "An Act to stimulate Economic Development through the Creation of Community Economic Development Corporations and through certain amendments to the Education Act, the Municipal Act, the Planning Act and the Parkway Belt Planning and Development Act."

As I understand the recent statement by the Honourable Frances Lankin, Minister of Economic Development and Trade, the new act provides a vehicle to enable municipalities to establish community development corporations and also provides a legislative framework for the financing components of the new Jobs Ontario Community Action initiative. Specifically, community economic development corporations can sponsor two new financial tools: community investment share corporations and community loan fund corporations.

The act indicates that "The objects of these corporations are to provide capital to new or expanding Ontario businesses," and that, "The province guarantees to eligible investors the purchase price of certain securities issued by community economic development corporations in the event of the failure of any of them to redeem the securities."

Under the heading of Jobs Ontario Community Action, this new legislation, again, according to Minister Lankin: "Aims to give local communities the resources and tools they need to undertake economic renewal initiatives. It will empower communities and support job creation by encouraging economic development activities on the part of those who best understand what is needed -- the communities themselves."

Minister Lankin also stated that community economic development: "Will stimulate helping communities to help themselves...will foster self-reliance in communities...will create greater cooperation...will support new partnerships," and, "will also allow new groups of people to play a part in community economic development."

As a mayor, I can only applaud Minister Lankin's apparent commitment to "put communities in control," and "to decide the economic priorities they want funded by the provincial government -- not the other way around."

This apparent recognition of the role of government in the economic development process is long overdue. Ten years ago, our submission to the Macdonald Royal Commission stated, "Municipalities are the basic building blocks of Canadian democracy." We suggested that local governments are the most accountable and the most scrutinized. We posed the question: Who knows first what is best for the future of their own community if not the local residents? It is the local property owner, the local business person and the average worker who all have the greatest stake in the future of their own community.

Apparently, the new act supports the principle of local decision-making. However, there is one very serious flaw in the proposed approach: Minister Lankin has stated that "All partners must be involved in making economic development decisions." The backgrounder also states that "CDC directors will be chosen by the membership, which could include local government, community groups, labour, business, education institutions, cultural groups, credit unions, cooperatives, equity groups and other interested citizens."

Although the new act claims to support local empowerment, the indication that the government of Ontario will regulate who may or may not participate and who may or may not be represented is an apparent contradiction. Frankly, if the basic intent of this act is in fact to put communities in control, then I submit that participation in forming and operating any community development corporation should be left entirely in the hands of the community.

Perhaps the committee is not fully aware of the nature or scope of community economic development activities already well under way in this province. Our city created its economic development corporation almost a decade ago. Most of the various tasks which are stated in the backgrounder, which accompanied Minister Lankin's statement of June 1, are already a key part of our own EDC's role in local or community economic development.

The operation of our local economic development corporation is supervised by a volunteer board of directors that represents our local business community, labour, education and local government. I would note that the private sector representation forms a majority of the board. Anyone in our community has ample opportunity to participate by seeking a nomination to the board through any one of several means.

Obviously, our community was capable of deciding this aspect of the local development process. With broad-based community input, our elected council created this municipal corporation and each year confirms the appointment of various volunteers who have expressed their willingness to serve and offer our community the benefit of their own particular experience and expertise.

In Thunder Bay, we were able to establish this form of community development corporation without the benefit of the proposed legislation. Many other Ontario communities have established similar organizations or pursue their own local economic strategies through specialized municipal departments, locally appointed development commissions or other mechanisms.

My point is that if Ontario wishes to become globally competitive, we must dedicate ourselves to action, we must clearly identify our specific goals and we must fully utilize all our proven expertise available in our communities to pursue those goals. We must develop a clear, specific and shared agenda which is practical and achievable.


Yes, we must listen to all members of our communities who are interested in local economic development, but someone or some group within the community must be given the responsibility to translate talk into action. When it is time to implement our new strategies, we must select those who are best qualified and most experienced to make our goals a reality. If we are to succeed, then this version of the merit principle is essential. Give us more tools, not more rules.

Our city is also committed to developing a new community-based economic strategy. This process, called Let's Talk Thunder Bay, began late last year and is well under way in its consultative phase through an extensive series of sectoral meetings open to our entire community. I am hopeful that the government of Ontario will join us in supporting this initiative.

Let's Talk Thunder Bay -- by the way, I wear the badge, both Dick and I. We've spent several months in our community talking about our very future. We divided the city up into 11 sectoral groups. Each sectoral group has been commissioned to hold six town hall meetings over a six-month period, 60 meetings in 11 sectors, and it is open to anybody in the community who wants to talk about our future in 11 defined areas that we feel can generate potential economic openings in our community. So we are in the middle of a very broadly based consultative process in our city already.

Perhaps this committee is not fully aware of the depth of local economic development in Ontario. When our city recently hosted the summer conference of the Economic Development Council of Ontario, EDCO, I had the pleasure of meeting people who are definitely on the front lines. EDCO alone represents development professions in more than 200 Ontario municipalities.

I should point out that, like many other Ontario municipalities, our city has already formed a variety of partnerships in the local economic development field. In fact, our local EDC board recently formed a special committee to improve the level of coordination and cooperation in local development activities.

Some of the current development partners in our city include our local community ventures committee, called Thunder Bay Ventures, and its business development centre, the enterprise centre at our local community college, the small business advisory service at our university, our centre for entrepreneurship, our local port authority, our local training committees -- our new OTAB is still pending -- the various committees and task forces supported by our chamber of commerce, our regional marketplace office, our local government purchasing consortium, local representation on the Fednor Advisory Board and on the boards of the NODC and the Heritage Fund Corporation. The list goes on and on.

Perhaps, before proceeding with the final reading of this act, the Minister of Municipal Affairs or appropriate staff might wish to investigate and review the recent history of local or community-based economic development activities in this province and share this information with the committee. The phrase "reinventing the wheel" comes to mind.

In terms of the suggestion that a pilot project to test the community development corporation concept is needed, I would emphasize that most Ontario communities already have numerous and sufficient mechanisms in place. More new organizations should not be the priority; the first priority should be concrete measures to stimulate our local economies and make us more competitive.

Community investment share corporations: I would like to move on to discuss the community financing component of the proposed legislation. One of the two new financial vehicles proposed is the Community Investment Share Corporation or CISC. These new venture capital corporations are intended to be for profit and to raise equity funding of up to $500,000 to purchase shares in new or expanding Ontario businesses.

As I understand it, the principal amount of value of shares to be purchased by local citizens is to be guaranteed by the province, which has allocated some $20 million for such CISC guarantees. The province would also provide startup funding as well as technical assistance to sponsors in unspecified amounts.

According to Minister Philip's backgrounder, "The province expects that 40 community investment share corporations will become operational over the next five years." The proposed CISCs would be limited to a minority position in terms of the equity capital invested in a growing company and in terms of voting control, not unlike the previous small business development corporations program which was terminated by the present government.

A reasonable estimate of the leverage factor suggests that the proposed allocation of $20 million over the next five years might in turn stimulate new private sector investment of $50 million, or $10 million per year. In view of the scope of new investment needed in our province, this estimate would appear to be less than a drop in the bucket.

Although we are waiting for the detailed program guidelines, I understand that the CISCs can be sponsored by municipalities, alone or in groups, or by so-called communities of interest, as yet undefined, which would in turn be eligible for 50% startup grants to a maximum of $15,000.

I understand that any direct investments of more than $150,000 would require the approval of the Ontario Development Corp, the Northern Ontario Development Corp in our region. Any investments of more than $350,000 would require ODC and NODC board approval. Again, so much for putting communities in control.

Obviously, the issue of operating costs, particularly in view of the detailed reporting requirements set out under the proposed act, is a real concern. Since some form of legal incorporation and annual financial reports are required, my initial reaction would be, who is going to pay for this?

The backgrounder also describes the rather extensive documentation which must be in place before an approval to issue shares is granted. The documentation includes a business plan for the proposed investment and an indication that the investment meets viable business criteria. Again, we ask, who is going to pay for this?

Clearly, an investment fund of only $500,000 might, at best, generate an annual return on investment of perhaps $50,000 prior to taxes payable. I seriously doubt if even the most optimistic estimate of the level of return would be sufficient to cover basic administration costs while still paying some net dividend to the shareholders. I emphasize that the proposed CISCs are intended to be for profit but, obviously, very little profit should be expected.

To put this proposal in perspective, a one-time venture capital fund of $500,000 might stimulate a handful of small manufacturing or destination tourism projects which might have a significant economic benefit in relatively small communities. However, in practical terms, our recent experience has shown that actual capitalization rates average about $60,000 per new job created in both the light manufacturing sector -- for example, electronics assembly -- or in destination tourism, perhaps a destination resort hotel.

At these average rates and assuming a two-to-one leverage factor -- for example, the CISC providing one third of the capital required -- each proposed CISC might generate or support the creation of only 25 new jobs. This anticipated level of community economic benefit would at the very least appear to be a rather inefficient use of volunteer resources.

It has been suggested that these CISCs might be administered by existing business development centres which have been established under the federally funded Community Futures program. At present, existing BDCs manage community loan funds supplied entirely by the federal Minister of Human Resources and Labour, formerly Employment and Immigration. This suggestion poses some interesting questions in terms of federal-provincial cooperation.

Finally, since no rate of return is guaranteed, the community investors who purchase shares in one of the CISCs assume almost all the risk. They are guaranteed the original amount of their principal in the event of default. I suppose their anticipated return on investment might be limited to knowing their capital remained in their own community and perhaps did some good.

I would now move to the other proposed new financial vehicle, the community loan fund or CLF. These funds are said to be intended to support the startup of micro-enterprises, the latest term for very small new businesses, and would provide ongoing guidance and assistance. The boards of directors for these loan funds will have broad community representation. I would assume this might include local banking or accounting community representation.

Each CLF would be non-profit and the actual money would be raised by selling notes which would fund an investment guarantee pool through deposits with local financial institutions which would agree to work with the CLF board. Each guarantee of a loan would be limited to $15,000.

Under the proposed act, the province would guarantee the principal on the investment up to $10 million or, in other words, based on the assumption that 35 CLFs will emerge during the coming five years, the province would guarantee an average of up to $286,000 per each individual CLF.

It has been suggested that the province may provide startup and operating assistance for each fund on a declining basis for five years beginning at $60,000. A practical estimate of the costs of supporting some 35 CLFs over an average five-year lifespan suggests each CLF might expect about $180,000 in direct provincial support for a total program cost of about $6.3 million, in addition to covering any provincially guaranteed losses.

It is also suggested that community loan funds would cover their operating costs from three sources of income: community contributions, including municipal donations; the above-noted operating grants from the province; and any interest earned on their capital pools or from guarantee fees paid by borrowers.


While this is an interesting concept, frankly I see very little difference between the province's existing New Ventures program other than some degree of community involvement in establishing and managing the CLF. Under New Ventures, a new entrepreneur can borrow up to $15,000 from any participating financial institution, provided he or she has cash equity of $15,000, or only $7,500 in eastern or northern Ontario. The province guarantees the loans and only the interest must be paid during the first year.

Since most participating banks obviously draw their loan capital from the community, the New Ventures program might be viewed as a community loan fund without all the administrative expense and paperwork.

One of my concerns is that each community loan fund must act as a lender of last resort, a term which was formerly applied to the Federal Business Development Bank. We can all appreciate the level of risk assumed by lending at the margin.

Another concern is that the applicant or client would not be required to produce any conventional security whatsoever. This aspect of the concept assumes that the individual can be a successful entrepreneur without having any financial commitment to a project. While the concept of character collateral appears similar to the old concept of sweat equity, there is no suggestion that CLF clients would have to invest even their own time in making a project successful.

Finally, since CLF loans would range from $500 to $15,000 each, one practical concern is that very soon loan applications could flood the system and overwhelm the administrative capacity of the CLF by imposing excessive operating costs.

Perhaps the existing New Ventures program should be reviewed and amended with some of the overall goals in mind, rather than creating yet another new program vehicle. It is possible that the present banking participants in the New Ventures program might reconsider their commitments of administrative time if asked to participate in another similar program.

Although I'm sure that our banks would appreciate the 100% provincial guarantee, I'm equally sure they would look carefully at their own administrative costs, particularly if they are dealing with a client who has been formally rejected for a conventional loan.

In order to sound a positive note, I would now refer to one other aspect of the proposed act, the introduction of several significant changes to the Municipal Act. These proposed changes should be of particular interest to all local governments in Ontario.

As the head of an elected municipal council, I would emphasize that any new measures to make the Municipal Act more flexible are certainly welcome and I would say, after the AMO meeting, more than welcome by just about everybody, without a resolution required.

Specifically, I would refer to the proposed section 210.1, which would permit municipalities to enter into an agreement with the private sector to help finance public infrastructure and permit the appropriate property tax exemptions.

I would also like to record my support for the proposed changes to section 111, the present prohibition on bonusing, whereby, as proposed under section 112, the council of any municipality may incorporate "community economic development corporations" and provide financial and other assistance, including cash grants or loans, contributions or loans of real property and the provision of technical support by providing the services of municipal employees.

While most Ontario municipalities already provide direct funding for local economic development activities, these proposed changes may serve to clarify our present roles and administrative agreements. In particular, the indication that community economic development corporations would not be deemed to be local boards under the Municipal Conflict of Interest Act may be helpful.

Also, the proposed act provides for amendments to the Education Act to permit municipalities, hospitals, universities and colleges to enter into agreements, including those which would involve the joint investment of money. Again, these proposed changes may be helpful. I should reiterate that our city is already a partner in a local public sector purchasing consortium which presently generates substantial annual savings for the city and other participants, including the local school boards, hospitals and post-secondary institutions.

In reviewing the recent remarks by the Honourable Frances Lankin, I noted that the Jobs Ontario Capital program created or maintained over 8,000 jobs during the last fiscal year. Minister Lankin also announced that Jobs Ontario Capital will invest $700 million in fiscal 1993-94, creating or maintaining 12,000 jobs.

In these difficult financial times, I would draw the committee's attention to the fact that this proposed investment is costing Ontario approximately $58,300 per job. By way of comparison, our ongoing local development effort in Thunder Bay has supported new investments exceeding $112 million and the creation of more than 2,500 net direct new jobs over the past nine years at an average municipal cost of $1,142 per job. During the same period, our local EDC was able to help approximately 111 clients obtain federal and provincial incentives totalling more than $20 million, for an average incentive of about $8,000 per direct job. Clearly, these figures suggest that local economic development programs are highly cost-effective.

The last page, supporting information, I would like to ask Dick Charbonneau if he would read this as well. It was added last night and it's something I concur with.

Mr Dick Charbonneau: For members of the committee, we thought that some recent local experience of ours in Thunder Bay might be of interest to the committee.

During the 1992 calendar year, our local EDC assisted some 23 clients in obtaining either or both federal or provincial financial incentives. For example, seven of our clients received $450,000 in FedNor assistance, of which almost $300,000 was non-repayable. These non-repayable federal contributions supported the creation of 25 direct new jobs in the manufacturing sector at an average cost to the federal government of $12,300. At the same time, our EDC helped seven clients obtain forgivable loans totalling $254,000 from the NorFund program element of the Northern Ontario Heritage Fund Corp. These non-repayable provincial incentives supported 19 new jobs at an average cost of less than $13,400 per job.

The government of Ontario, through the Northern Ontario Development Corp, also provided secured term loans or loan guarantees to four of our clients during 1992, a total of approximately $900,000 in support which helped to generate 31 new manufacturing jobs at an average cost of about $29,000. I reiterate that all of the NODC assistance is fully repayable with interest. So the province's actual costs may include some forgone interest, or there is obviously always the risk of default which might require honouring the guarantee. However, the success rates are impressively high.

Finally, we had seven EDC clients who qualified for the New Ventures loan program, and they of course received the provincial guarantee of up to $15,000. The average cost of that program was $11,800 per job. Again, the province's actual costs for these guarantees are limited only to their administration and to potential defaults, because most of the day-to-day work of the program is handled by local development agencies or by participating conventional lenders.

The point is that these programs are all working fairly well and should all be recognized and reinforced before new mechanisms are put in place.

Our community is not alone in Ontario in competing for new investment with adjacent jurisdictions, specifically other Canadian provinces and of course various American states. Even with the proposed changes to the Municipal Act, Ontario municipalities are severely restricted in terms of available local development financing tools when compared to nearby US city and county governments. I would refer specifically to such tools as industrial revenue bonds, which are tax-exempt in many states, or to tax increment bonds, which are a relatively new vehicle that local governments can use to finance onsite public infrastructure improvements needed to attract new industries or revitalize existing industrial sites. Neither of these two programs involves any real cost to government, since they support new private investment which would not otherwise proceed. At the same time, neither of the programs requires any form of government guarantees or risk of loss.

We felt that rather than starve existing programs which are functioning fairly well, perhaps there should be some look at least at using tools that have proven merit.

The Chair: Thank you very much for a very comprehensive brief. Mr Grandmaître.


Mr Bernard Grandmaître (Ottawa East): First, Mr Mayor and Mr Charbonneau, I must congratulate your city for doing such a great job. It's very seldom that you come across cities like yours doing so much. I realize you are sometimes at a disadvantage because you're away from Toronto, being the central core in the province of Ontario. We realize that it's difficult for you.

So what you're telling the members of this committee this morning is: "No, thanks. We're not interested in this program. Ours is much better, more comprehensive and less costly to taxpayers." Is this the message that you're delivering this morning?

Mr Hamilton: First of all, thank you for the complimentary remarks. There was quite a bit of last-minute effort put into meeting the fax confirmation of August 18 to be here today, but we have a lot of these issues that we talk about at the EDC board constantly, so it was a matter of pulling them all together and putting them in the report.

I guess the overriding message that we're saying is not, "No, thanks." We're very happy that the committee and the government are reviewing economic development activities and focusing on the word "community" economic development activities. I translate that, as a mayor of a local community, as using and recognizing local government as a form of government that should be delivering. But I guess in general what we're saying is that before we start announcing any new programs, some of which we've gone into in a lot of detail here for your consideration, before we get into any new programs that may be perhaps long on rhetoric and short on dollars, let's make sure that what we have already is working well and is properly funded. If it's working well, fine; make sure it's funded properly. If it's not, get rid of it. Obviously, we all have a long way to go in the entire country, in the province and in each municipality in getting our costs of government down.

Also, we worry about the concept of this program being considered community and yet we find that already there's open discussion about the types of groups that should sit on something that we would argue we have been doing very successfully and unchallenged by the residents of Thunder Bay for 10 years. They have been paying a considerable amount of money to run the economic development corporation. Mr Charbonneau's tenure has been throughout the entire existence of it. We've laid out the successes in numbers, facts, dollars and figures; it's all verifiable. So if you're telling us that we are going to be allowed to make decisions and then all of a sudden you're telling us the types of individuals who will be sitting in on this group when we've already got a track record that I think speaks for itself this morning, ladies and gentlemen, we become nervous.

So we're happy that the philosophy and the opportunity are there, but we want you to take another look at the existing programs that are in place and the expected actual outcomes of these new ones you're announcing before we see you committed to more programs. We would love to work more openly and more flexibly at the local level.

Mr Hans Daigeler (Nepean): Thank you very much for, frankly, I think, a very excellent analysis of what this is all about, and I will have an opportunity to use this when we discuss this matter in the House because I think you make some excellent points.

To me, what this really boils down to is that you understand "community" in the way I do, but not, I think, in the way the NDP does. I have come to believe that, really, the NDP has its own terminology and you have to understand; you almost need a dictionary. "Community" is one of those words that means something else, I think, for the government, and the NDP in particular, than for us.

Mr George Mammoliti (Yorkview): You got that right.

Mr Daigeler: Precisely. And I think the meaning of "community" in this case, and this is what's underlying this bill -- community are all those people who could not get funding for business development unless it's guaranteed by the government.

I think, as I indicated earlier, there's perhaps a legitimate need to provide these people with some chance in life. I don't have an argument with that on the government side. But clearly one must recognize that that is not what you, I think, are thinking of. I think there's limited room for this, to help people who otherwise would not have any access to an opportunity, give them a chance as well.

But when you, and I think when most of us, talk about community economic development, it's something else. It's a chance to try and give anybody who's out there with the drive -- help them to succeed. Now, I'm just wondering whether you, after having looked at all this, would agree with me that really what we're talking about here are two different kettles of fish and that both have their own place.

Mr Grandmaître: Well, I have a good question.

The Chair: I'm sure there are a lot of good questions, but we have a limited time.

Mr Hamilton: I respect the partisan nature of the provincial Legislature, but I will decline to participate. Municipal politics allows me to exempt myself from that publicly but not personally.

Mr Randy R. Hope (Chatham-Kent): There's no partisanship in municipal politics, is there?

Mr Cameron Jackson (Burlington South): You don't have a cabinet minister any more in your town. You're fine.


Mr Hamilton: Other than saying I also go to church, we'll leave that alone.

I think your question revolved around our dissenting concern about the participants and the community groups that would be almost commanded to be a part of the infrastructure of these groups and organizations. Is that -- I'm just trying to clarify.

The Chair: We'll let Mr Johnson clarify.

Mr David Johnson (Don Mills): I'm not going touch that. I don't know what -- I think there's some philosophy going back and forth.

Mr Hamilton: I don't want to get into a debate about parties here.

Mr David Johnson: All right. Let me lead you down a different tack then. I too --

Mr Mammoliti: Bring us back down to earth, will you? What, you're not going to ask any questions?

Mr David Johnson: I too would like to compliment the city of Thunder Bay. Having been involved in municipal life myself up until very recently, it's very interesting to see the initiatives in other cities. I must compliment you not only in terms of the action in the city but on a very analytical report.

There are some serious concerns that are raised within this report. If you were to look into your crystal ball, looking at the share corporations, for example, you've made the statement that CISCs are intended to be for-profit but obviously very little profit should be expected because of the various points that you've raised. What sort of takeup do you think there would be in the Thunder Bay area through the CISCs, and through the loan funds too, where you've also raised concerns?

Mr Hamilton: Any expenditure of money, whether it be public or private, should be matched with some pro forma analysis. In this case, on broad proposals we try and throw together some money to give an example of why we are concerned and quantify it with dollars.

I think an individual coming looking for any money from anybody, private or public lender, should be able to provide and justify a pro forma that would interest both parties, not just themselves. That really seems to be one of the basic axioms of any loan or any type of loaning of money. I would ask Dick to comment on that further, if I may, Mr Chair.

Mr David Johnson: I guess when Dick is commenting, what I'm asking is, would you find investors for the loan fund and for the CISCs?

Mr Hamilton: Would we find investors?

Mr David Johnson: Would you find investors under the conditions that are in the bill at the present time?

Mr Hamilton: Dick works on it day to day. I gave you the general. If he may respond --

Mr Charbonneau: Basically, sir, I don't expect that we would find very many investors because we don't have the investment vehicles here in Ontario or in Canada that prompt this kind of investment. For example, there are community-based loan or incentive funds operating in some US cities near our jurisdiction which have tapped the major foundations, which are of course established under US law, for operating donations and actual equity contributions. But I don't think we're going to find investors to do this because they have no reasonable expectation of return. Frankly, to suggest that they could use their RRSPs -- if in fact people planned to ever have a pension, I guess they would expect to have some yield from their savings over time.

Mr David Johnson: Exactly.

Mr Charbonneau: This is kind of a contradiction in terms. A saving is not a saving if in fact only the principal is risk-free. So I really don't feel we're going to have takeup on either of these unless we make them accessible in a context of corporate citizenship or public philanthropy, and that will mean, frankly, some tax advantages.


Mr Hamilton: Again to reiterate, we stress that the general philosophy of many of these initiatives is very noble, but some of the ways of delivering them may well be in amending existing programs, which you can call another name or whatever, but there may be existing programs that can be amended to accommodate it better. And when we run through the numbers, we find some of the interesting philosophies not making a lot of good business sense.

Mr David Johnson: My colleague would like the final two minutes.

Mr Jackson: No, I yield to my colleague the former mayor of East York.

Mr David Johnson: I think, number one, we're getting that if this goes through, you'd like to see the communities have more control in terms of selecting the people who are involved. Number two, you're saying that we should look at the existing vehicles that are there and fortify them perhaps. Can you be more specific in terms of the number one action you'd propose in terms of vehicles that are there today where you'd like to see a change?

Mr Hamilton: There are a couple of places we go through this.

Mr David Johnson: The New Ventures program, for example.

The Chair: We don't really have a lot of time for response.

Mr Charbonneau: Very quickly, sir, I would suggest the New Ventures program currently operated or supported by the province would be probably the ideal program to examine, by way of meeting many of the client needs anticipated or foreseen under the community loan fund program. In essence we said they're basically very similar in nature. Yes, perhaps there could be ways to introduce more local involvement in them, but in essence all that has been provided under New Ventures is a loan guarantee from the province on the principal, which frees up any other collateral.

We've had good success with our banks, although many are dragging their feet because they feel obviously the administrative costs far outweigh the advantage to them, even with the loan guarantee from the province. However, they kind of grudgingly understand why it's important to grow new customers, and I guess many of them perhaps see it is as a longer-term investment.

Mr Hope: I was just interested. In here you're talking about the economic development stuff that's going on in your community. I represent a rural community in the city of Chatham, outside the city of Chatham. I know municipal governments never play partisan politics so I won't enter into that process. But when you were talking about you already have established in the municipality a corporation dealing with economic development, this legislation also provides for you to incorporate in that process to bring it into the process, not to create another bureaucracy. Doesn't that eliminate some of the administration and help you and the community to step your approach more broadly towards bringing economic renewal in there?

Mr Hamilton: If we can continue to use the same umbrella rather than run around with two or three new ones, that is a positive step.

Mr Hope: I ask the parliamentary assistant, but I take section 112.2 in this Bill 40 to mean that "The council of a municipality, either alone or together with one or more persons or municipalities, may incorporate a corporation under part III of the Corporations Act as a community development corporation."

Mr Charbonneau: They can do that now.

Mr Hope: So all this does is --

Mr Charbonneau: We're incorporated under Ontario law.

Mr Hope: Well, just wait, because I'm getting some staff and I would ask staff for a clarification of this, because this needs to be clarified and I would ask staff to please come forward and to clarify this for us.

The Chair: The parliamentary assistant?

Mr Hope: Through the parliamentary assistant, and then he can ask the staff.

Mr Drummond White (Durham Centre): Tania Melnyk, I'm sure, will be able to address that issue for us.

Ms Tania M. Melnyk: This is exactly the point of that clause. It is intended to provide the power to municipalities to establish corporations. It was discovered that a number of corporations that have been in existence for a number of years around the province were in fact created without the appropriate legal power. The intent of this act is, first, to legalize, if I may say, the existing corporations, and as well to provide the opportunity to establish more broadly based corporations. They are very much an option, however. No one is requiring anyone to establish a more broadly based community development corporation.

Mr Hope: Well, it's just a philosophical difference. I won't enter into that, though.

The Chair: Further questions?

Mr Norm Jamison (Norfolk): Yes. I apologize for coming in late, but I had some other responsibilities this morning. I found it quite interesting as the parliamentary assistant responsible for small business with the Ministry of Economic Development and Trade that really what you were saying is that this is a duplication of sorts to the New Ventures program. I would say not, on the basis that the New Ventures program is designed, number one, directly for startups. The new program covers much more than that. The New Ventures program is administered directly by the banks and the banks really are more involved than they would be in the community committee type of setup. So I beg to differ with you on that, and in the New Ventures program, as we move forward, the paperwork is always a burden on a small business. There's no question about that. Clearing the path, which we're moving forward on, should deal somewhat with that. But to say that the New Ventures program encompasses all the aspects that have been brought forward in this legislation I believe to be incorrect.

Mr Hamilton: We certainly didn't say that exactly in the written presentation. It may have been stated when we were speaking informally.

To recapture, though, we certainly wish the committee to pay particular attention to that existing program and to ensure that it is running properly, and that's I guess the bottom line of the report in that area, before we launch into any new initiatives. The money is short and it's very critical how we all work together to develop our communities in the province of Ontario.

Mr Jamison: I understand that the New Ventures program is not the vehicle that provides benefits to every aspect of the small business community. After startup there's a major gap, and that's what I mean to indicate here. The community economic development initiative would provide potential help to businesses in the critical three-year period after startup, when success or failure are the either/or terms of the day, in general terms.

Mr Hamilton: I guess the dissent, where we don't agree, would be on page 8 in the second paragraph. I won't read it again, but we mention the comparison, as you raise, and our position is backed up with an example of dollars. We present it to the committee for your consideration.

The Chair: Thank you, and thank you for coming from the fine city of Thunder Bay to make your presentation to the committee. For your information, the committee will be considering this bill clause-by-clause next week, and hopefully it will reported to the Legislature and dealt with this fall.

Mr Hamilton: Thank you very much, Mr Chair and members of the committee. We have a formal bound copy for the Chair, if I may present it to the clerk.

The Chair: Thank you.



The Chair: Our next presentation will come from the Community Opportunities Development Association, Paul Born.

Mr Paul Born: Good morning. How's all this going? It seems like it's a long and sort of tedious picking at the legislation, and what I want to do with you today is share with you a little bit about why I support Bill 40, why I think that, as a community economic development organization, Bill 40 is the pavement on a gravel road that we've been travelling on for a very long time. The shocks are starting to give out and it's going to feel good to have this legislation happen.

Let me tell you a little bit about who I am. I'm the executive director of the Community Opportunities Development Association. I also sit on the economic development advisory committee for the city of Cambridge and I chair the community economic strategic planning committee.

Community economic development is a relatively old yet new term. I think that we've looked at it in other ways, we've sort of talked about some alternative economics, but I think right now we have some new people who have latched on to community economic development, people who have a solid business background, who understand how to run business and who aren't scared of profit, who, as a matter of fact, quite like profit. When you have individuals like that working in community economic development, and as I've always said, if we can take community economic development out of the granola crowd, then we're going to see what it can really achieve. That's really what we are attempting to do as an organization.

CODA is a non-profit community-based charity. We were established in 1984 by the Waterloo Regional Labour Council. We were then made into an independent body that is made up of equal representation from business, labour and community members. We have just over 200 volunteers who are very actively involved in the organization and 51 staff. We work within the Waterloo-Wellington regions, which include the cities of Cambridge, Kitchener-Waterloo, Guelph and beyond.

What I forwarded to you today is an overview of the organization, of CODA, giving you a little idea of how we define community economic development on page 2, then on pages 3, 4, 5 and 6 overviews of the some 20 programs that CODA operates and then in the final two pages our location and some of the other things we are doing.

CODA works very much in partnership with people in the community. As a matter of fact, we co-deliver programs in 20 locations with over 20 other community organizations.

When I thought of Bill 40, I thought of this, my credit card, and I want to boil it down to something this simple. I'm wondering how many people around this table don't have one of these.

Ms Christel Haeck (St Catharines-Brock): Over-extended.

Mr Jackson: We have too many of them.

Mr Born: The credit card can be either a good tool or it can be a negative tool. For many of the people CODA works with, access to credit is the most difficult aspect of getting ahead, particularly individuals who want to start businesses. CODA this year will work with just over 1,000 people who want to start businesses. Of those, approximately 120 will start businesses within the Waterloo-Wellington regions. About 30% of those individuals have no access to credit. Why? Because they're on social assistance. We are even finding that people on unemployment insurance have much more access to credit than people on social assistance, and those who don't have access to credit cannot start often successful businesses.

I will talk a little bit later on about how CODA sees Bill 40 living, what's going to make it work and give you some real-life examples of people who would not have been able to start their own businesses if it were not for a loan fund that CODA operates which is similar to the community loan fund program that you are administering, or that Bill 40 is going to bring forward.

I want to support Bill 40 because I think it is legislation that is in the right direction. It's not the panacea, there isn't enough money, the legislation is cumbersome, and we all recognize that. But that is the way things happen, so we live with it.

One of the things that CODA often uses in our community economic development strategy is we say we build the road as we travel. As long as we know where the road is going and we're focused with our strategic direction, with our planning and, most importantly, with our innermost commitment and philosophy to making something happen and making it work, the road gets built and it gets built well.

So I see Bill 40 as the beginnings of the road. As we travel, we will work together, in commitment as a community-based agency, with staff and with politicians to try and make it the best possible program that it can be, given limited resources.

How is Bill 40 going to live in practical terms? A lady came to CODA back in 1989. She had been recently divorced and was on welfare. She was 48 years of age and felt, for all intents and purposes, that her skills were redundant and that in many ways she was unemployable. She felt she was over the hill.

She came to CODA and we worked with her and we talked with her and we started to bring out of her some of the dreams and visions that she had for her life, but more importantly, we talked about what she loved to do, and what she loved to do was bus tours. She set up bus tours for everyone and everything. From the time she was 16, when she lived in England, she would set up bus tours to take the local kids, from the community, dancing in the city. When she came to Canada she would organize fall bus tours on a regular basis for her friends. This is what she loved to do. Obviously, being on welfare, starting a bus tour company was not a simple matter.

Within a matter of six months in working with this lady we developed a very professional business plan. She then accessed CODA's loan fund for some $5,000 and set up her office, and with her skill and talent, this year she will do over $400,000 in sales and employ four people. Without the loan fund, she would not have started the business.

Another lady came to us, a single parent again, on social assistance, one child. She was in her mid-30s, had extensive training in holistic health therapy. It's an interesting business. We thought, "Jeez, how do you make a living at this?" Within 18 months and a loan of $3,600 from CODA, she was able to start this business and be completely off social assistance, repaid the loan and was pouring over 30% of her net earnings back into the company. She was living on only 70% of her net earnings.

These are only two stories of many, many stories that I can share with you of people who have started businesses.

I have brought with me and I'll go get it when -- somehow it got handed out, or do I have it here? Here are some examples of some of the businesses -- and I can just show you, it goes on for pages -- that CODA has helped start: hair salons, fitness exercise apparel, artistic wood carving, cake decorating, portable photography service, product development consultant, manufacturers' representative to China. An individual with Chinese heritage and able to speak the language has now taken Canadian products, got the investment from Canadian corporations, and she is now their sales representative in China and will begin selling their products, primarily in the poultry industry now, in China. A fantastic business. We have great hopes for it. She is in China now; she left last month. Those were some of the ones we started in Cambridge.

In Guelph: consulting technician on computer-aided design; there's a new Spanish nightclub opening up in Guelph; administrative and consulting services to non-commercial radio interests; bed and breakfast; growing and distributing of commercial herbs.

In Kitchener-Waterloo: inventory management and training company, mobile locksmith, export and international trade consultant, aluminum siding cleaners, wicker and caning artisan, distribution of environmental testing. Another individual who came to CODA on social assistance, hitchhiked his way around the United States and with gratis help, or at least part ownership in his company, went and tied up all of the environmental testing kits in the States and tied up all of the patents for them, brought them to Canada, came back and now has national sales with Home Hardware, Canadian Tire and St Clair paints. So again, a person on social assistance with all kinds of initiative who could not have started without a community loan fund.


Stratford, Listowel and surrounding areas: Again, the holistic health therapy is out there; food vending; one-hour photo lab and camera sales in New Hamburg; energy consulting, and the list goes on.

Why do I believe in community loan funds? Because if there isn't access to credit, the people on the margins of society, with all their dreams, with all their hopes, with all their talents, have this insurmountable barrier that they cannot get over. They need credit.

Almost all of the people whom I have talked to you about today did not qualify for New Ventures because they didn't have the matching capital that is required under New Ventures to start their businesses. These are people on social assistance, and when people are on social assistance, we subject them to having no money at all. We make them deplete their savings, their RRSPs, and in some cases to sell their homes. It is very, very difficult for these people to have access to equal opportunity.

Community loan funds can work, and what I want to share with you is CODA's community loan fund. I know it is not the same as the community loan fund that you are establishing, and yes, we were able to establish it with the assistance of various levels of government and some private individuals --

Mr Jim Wiseman (Durham West): You're really screwing up Hansard by wandering around.

Mr Born: Sorry.

Mr White: That's all right.

Mr Born: -- from the Canadian Council on Social Development and a number of other consulting companies.

We were able to gather together $312,000. We issued, at that point, 33 loans or $106,066. To date, we have written off zero loans. We have four defaults, or what we call inactive accounts that we are still collecting, which have the potential to write off $10,492.

The loan fund has been relatively successful. We lend money at the prime lending rate plus 1% and the average loan is about $3,214. We have experience that if we give access to credit to people who are on the margins of society or if we bank the unbankable, they respect us, they work with us. They respect those who have given them that chance, and that is why I am asking you to support Bill 40 and to implement it as quickly as possible. We need to do more.

Further, through the community economic strategic planning committee of the city of Cambridge, we are looking at developing further projects, of attracting companies and growing other companies. We also need a vehicle whereby we can give larger amounts of credit to individuals and corporations where banks may not be willing to take the risk but members of the community will because they see it as viable and important. Therefore, the community investment share corporations, we find, will also be very helpful.

The question's been asked: Can we raise the money? I don't know, but I know that we will try. We have already formed partnerships with an organization called the Mennonite Economic Development Associates, which has a very, very strong chapter in our area. They have an international reputation for running some of the finest loan funds internationally. They are saying that they feel they can raise the money within their constituency, that they have people who understand how to give in this way.

I can tell you that I will put some money into this, a minimum of $5,000 I will invest into this, and I'm putting my own self on the line here and I'm asking others to join me. That is how community loan funds are established. It's the same way that we raise money. When I want to go out and raise money for CODA, I go and say, "This is what I've given." Our volunteers say: "This is what I've given. Please join me." When they begin to see what value that gift has had to the community, they will understand that the lost interest, if there even might be lost interest, is an incredibly valuable investment in our community.

My feeling is that if we can raise substantial dollars on a fund-raising campaign, where things are not secured, where it's direct money out of their pocket, I don't see why we wouldn't be able to raise substantial amounts of money using Bill 40, where the dollars are secured by the provincial government, where the only potential loss that there is for the investor is a little bit of lost interest. My belief is that that lost interest is a small price to pay for the future of your children and your community.

I support Bill 40 and I ask that you support it as well.

The Chair: Thank you. Mr Johnson.

Mr David Johnson: Certainly, to express congratulations to CODA for obviously being very involved in helping many, many businesses in the Cambridge area, I guess, is it, primarily?

Mr Born: Waterloo region; Kitchener-Waterloo, Cambridge, Stratford.

Mr David Johnson: So, obviously doing an excellent job and congratulations to you.

I'm just a little curious, looking at the loan fund performance that you've just recently given to us. There was $312,000 raised in the first instance. This was raised in 1989, was it, at that point?

Mr Born: Yes.

Mr David Johnson: And the loans that have been granted have been just a little over a third of that amount in the four years. Did you expect that there would be more applications through that period of time, or is this about what you expected?

Mr Born: It's important to recognize that we stopped issuing loans in 1991, by directive of our board, mainly because they felt that they wanted to analyse the success to date, and then what they have asked us to do is enter into agreement with a third-party lender. One of the things that we have found difficult is that we mentor a business along, get it started, work very hard with it and then, if there is a default on the loan, collecting that loan is a difficult and big-stick process.

Mr David Johnson: Sure.

Mr Born: That was very uncomfortable for staff at CODA. The other thing that the board felt is that they wanted to regroup the self-employment program, move it into a new direction. That we have done, and we are just wrapping up now our third-party lending agreement with MEDA to begin to do the third-party lending in our community.

Mr David Johnson: Now, you've had very good success, apparently, for defaults. I'd call four out of the 33 for a total of $10,000 to be pretty good success.

Mr Born: Yes, four left. The others have paid off. Even though they've defaulted, they've paid off.

Mr David Johnson: Yes. Now, that was going to be my question. There are 33 altogether; four have defaulted. That leaves 29. Have they paid off? Have they all paid off, or are they in various levels of paying?

Mr Born: I think we have 12 left that are in the final stages of payment. We gave three-year loans to them, gave them a three-year period of time; six months interest only, no principal, and then after six months we start to do principal and interest.

Mr David Johnson: You were talking initially about a number of businesses and you were going through specific cases. Did all of those businesses get loans, or just some of those businesses get loans and others get advice? How does your group operate?

Mr Born: The vast majority of the ones that I have expressed to you did get loans. Obviously, as executive director, I have not that much direct contact with the businesses, as our business consultants do. But from my memory, these are the ones that I was able to pick out, the ones that I read. It was about 30% of those that went through our training program.

Mr David Johnson: One of the questions I was going to ask before this sheet came around was whether you had any statistics on the success ratio of the businesses that CODA had assisted setting up, in a sense. Perhaps I'll still ask you that question. There are obviously a great number of businesses you've been involved with. Some have failed, a small number here apparently, but --

Mr Born: Sure, yes. The last follow-up we did was in the fall of last year, just after the reorganization started, and 78% of the businesses that we had started were still existent.

Mr David Johnson: Seventy-eight per cent that had started were still existent.

Mr Born: Yes.

Mr David Johnson: All right. And that goes back to --

Mr Born: To 1988, when we actually started businesses.


Mr David Johnson: What sort of process do you use to screen? You must have some applications that you say, "No, that's just not viable."

Mr Born: Exactly. For every 1,000 applicants, we accept somewhere in the area of 220 to 230 individuals into our training programs. They aren't direct applicants. We have a four-stage application process, and each of them is not paper-oriented, they're very much related to making people understand their business concept.

The way CODA developed itself was, first of all, we published a book called Welcome to Small Business in Waterloo Region and got the interest out there. Then we started delivering two-day self-employment workshops, and these are all over, all the way up from Listowel to Stratford to Guelph to Kitchener-Waterloo and Cambridge. People come to these two-day workshops and they then basically assess their business idea. We sort of let them know why they shouldn't start a business, because we think that's just as important as telling people why they should start a business, even though the course is focused on the positive in terms of why you should start. But really that's our goal at that point, to get people to drop off and to only allow those who really have viable business ideas to continue on.

Once they've completed that, then they will apply for a variety of programs that we have. If they're on unemployment insurance, they'll apply for the self-employment assistance program. That's funded by the federal government. If they're on social assistance, they'll apply for the going into business program, which is the community enterprise program under Jobs Ontario. If they're neither, then we will work with them one on one in a private consulting arrangement if they can afford to pay. If not, they're also allowed into the Jobs Ontario program.

Mr David Johnson: So --

The Chair: Thank you, Mr Johnson.

Mr Born: Very good questions, and I --

The Chair: I have an interesting task of getting Mr Wiseman, Ms Haeck and Mr Jamison in in the next five minutes.

Mr Wiseman: Mine's a very quick question. You indicated that Bill 40 is going to allow you to do things differently. I would like you to explain to the committee how you're going to use Bill 40 in a concrete way, and giving examples, when you have such a good success ratio and rate with what you're doing already. What does Bill 40 allow you to do in the way you will relate to people, the way you will raise funds and so on that is different and that you think will allow you to have greater success?

Mr Born: What I can share with you is the vision that we've been kicking around the planning table, because that's where it's at right now, because we don't have a concrete program to apply to and to develop.

Essentially, what we realized is that, first of all, the importance of Bill 40 is that we can sidestep the banks, which don't want to partner with us or with any other community economic development organization and don't want to issue loans of $5,000 because they say it costs them more money than it's worth. So we've been able to sidestep that, and now we have access to credit, okay?

One of the first things we will do is, in forming the partnership, we have identified a specific constituency which we feel is used to investing money this way. We are fortunate in our community that we have individuals like that. I think every community has that constituency. But essentially we will put together a -- I want to call it a business plan, but that's not what it is. It's a case statement that we want to put together just as we'd go into a fund-raising campaign, saying why people should invest in this program, why it's beneficial to them in their community and what their potential gains are for them and what they can get for it.

Then we would put together a cabinet that is responsible for doing the one-on-one asks and going out into the community and actually doing the asks for the dollars. Our hope is that they will be getting substantially larger donations or contributions than $5,000. As a matter of fact, if there is one critique I would have of Bill 40, it's that the $25,000 limit or 10% of the guarantee isn't a good idea. We should try to go to 25%, because if we could get someone to invest $50,000 or $100,000, it's the same amount of work as getting someone to invest $5,000. It's just a matter of who we're going to and asking for these dollars, and I don't think there's any concern about this person dominating the fund, because these people aren't doing it as a power approach, they're doing it to assist the community.

At that point, we'd begin the establishment of the fund. Then we would work with agencies in the community, particularly in the work we are doing and others in the community who are doing small business training. We would start to publicize the program in a broader way and allow people to start making applications to the fund.

Then the fund would be administered in the best way possible. Our goal is to charge no less interest than the going credit card rate. We're changing our philosophy dramatically in that. Whether we're allowed to legislatively I don't know. We'll do what we're allowed in that sense. I can talk to you at some length about why that's important and why that rate is a bargain when we're looking at what we're doing. It's very important that these loan funds become independent and self-sustaining, and the only way one can do that is to charge interest rates that are equal to the amount of work that it's going to take to administer this. This is again the experience that we have working with a very, very strong partner that has been doing lending in developing countries for over 25 years and knows what they're doing and how to do it and grow it substantially.

Now, all of this has been said on the basis that we have not been chosen as one of the pilot projects and we do not have the final terms of reference, but what I'm trying to do is to put some feet on to a program that may be less than traditional.

Mr Daigeler: Thank you for the presentation, and I appreciate the work that you're doing with the target group that you've set for yourself.

Mr Born: It's important to recognize that all parties around this table have been very supportive of our work and have all contributed significantly to it. So we're a very non-partisan organization and have received as much help from the Liberal and the PC governments as the New Democrats.

Mr Daigeler: Nevertheless, we have to recognize, and that was the point I was trying to make a little bit earlier, that the term "community" means something in this context and it means something else for many other people.

In that context, I was interested when you said, and I'd like you to explain a little bit more what you meant, that community economic development will really take off when it moves out of or beyond the granola crowd. What did you mean by that?

Mr Born: We often are nicknamed granola MBAs because we love business and love making profit and yet we have a very strong social conscience. I think that's what I mean, that at CODA we hire people who have significant business background and we also hire people who have significant social work background. It's that dialectic and the dialogue that goes on between these two that creates innovative programs. That's what I'm suggesting.

Mr Daigeler: I appreciate that clarification, and again, as I say, I support this. To some extent I come out of the same crowd because I'm a theologian by training, but I think we should recognize that, as we saw from the mayor from Thunder Bay, community economic development means something very different to many other people. As long as we know what we're talking about, I think then we can be supportive of both.

I have a question actually to the parliamentary assistant that I would like to just simply put on the record. I'm sure he'll be able to respond to this. Could we get a listing from the ministry of all the groups that are similar to CODA that exist in the province? There are all these different organizations that fulfil a similar purpose, and I'd just like to know who they are and where they are. Would that be possible?

Mr White: I can certainly attempt to do that. What you're asking, though, is a group which may have some characteristics of the kind of group that will be applying for status and it's a bit nebulous, because of course groups could be like CODA, they could be churches, they could be Mennonite communities. There's a whole range of different possibilities of groups that might want to apply for status. But we will none the less attempt to deal with that question.

Mr Daigeler: That's precisely why it's so difficult to say, "They're a part of it and they are not," but what I'm looking for is really a list of those groups that are specifically involved in the type of economic development the gentleman is talking about, that are currently involved in this.

Mr White: I will certainly attempt, with staff, to derive that list.

The Chair: Thank you, Mr Born, for appearing.

Mr Born: It's 11:30 on the nose.

The Chair: Sometimes I get it right. Thank you very much. For your information, as I said before, we'll be dealing with this particular bill in clause-by-clause next week, hoping to report it to the Legislature this fall.

Mr Born: Wonderful. Thank you.



The Chair: Our next presentation, FRIDA Craft Stores, Susan Bellan. Susan, if you'd just come up and have a chair. Introduce yourself for the purposes of Hansard. You have half an hour to make your presentation to the committee. The committee always enjoys some time to ask some questions of clarification or information.

Ms Susan Bellan: Well, if I can't convince you in a half an hour, I think I'll never convince you.

My name is Susan Bellan. I'm a Toronto retailer. I've been in business on Front Street in Toronto since 1979. I'm also an economist, and before I started my business I advised Third World countries on creating labour-intensive industries. I did work for the World Bank and various governments as well as the Canadian government. I am also chair of banking issues for the Canadian Organization of Small Business in a voluntary position.

Talking from my own experience, I believe the community economic development issue, while it's laudable, is more useful in a rural setting rather than an urban setting and quite frankly I feel as though it's a bit of fiddling while Rome is burning. Talking about financing small businesses to create 600,000 jobs in Ontario, if you talk about that without talking about the banks, it's like having a wedding without inviting the bride.

With what's happening right now in Ontario, it's as if -- I'll give you an analogy. Just imagine if Ontario Hydro said: "Well, we don't think we're going to put power into farms any more or in fact into places under 100,000 people because it's not really cost-effective. We're only going to do over 100,000 people and we're going to sell power to the States because that's where we really make our money." So communities had to turn around and say, "Oh jeez, I guess we better start setting up power plants," so communities all start setting up power plants.

I'm asking you whether you think that would happen or whether people would raise the roof and say: "What the heck is this? What do you think you have the monopoly for? You have the monopoly to provide power to Ontario. It's not your own ambitions you're after. You are here to serve the needs of Ontario."

I submit to you, members of the committee, that that's what is happening in the banking sector. Just because the banks happen to be five chartered banks rather than one doesn't mean any less that they're not a monopoly. Essentially it's a monopoly that we have here, and it's a monopoly that's not doing its job. I would say they're doing their job as far as keeping depositors' money safe is concerned, but at the same time the banks have a responsibility on the investment side, and they're falling down on that; they're not fulfilling their role.

I think what's happened here historically is that until the 1980s, Ontario was considered Canada, basically. It was the heartland of Canada, and the banks were considered Canada, and it was sort of like Ontario equals Canada equals the chartered banks. Everybody's interests were going in the same direction. Then what happened in the 1980s, I think, is that the banks went global. They started to look internationally and started to think about investing in foreign money markets, buying American banks, buying global trust companies and getting really keen on getting into the North American free trade agreement, looking at the possibility of expanding into Mexico.

What's happening, as I see it, is that Canada and Ontario are being used as the springboard for their ambitions. It's great for them, I assume, but I don't think it's too great for the rest of us. I recently attended a talk given by Maurice Strong, and he said that the mission of Ontario Hydro is to provide cheap power to keep Ontario industries competitive. Well, unfortunately I don't see that our banks see that their mission is to provide all sorts of investment capital to keep Canada and Ontario prosperous. They don't see that as their goal, and I believe they ought to.

I think we should realize that right now, first of all, there's at least $300 billion of depositors' money in chartered banks in Canada. I gather 55% to 60% of it comes from Ontario, so that's $150 billion, $160 billion of Ontario's money sitting in these institutions right now. Meanwhile, credit unions have $12 billion.

In Quebec, the crédit Desjardins has $56 billion by comparison, so that's where all the money is: $56 billion in the crédit Desjardins and $40 billion in the National Bank, which concentrates its energies on Quebec. All these institutions actively participate to keep Quebec strong. I know. I've read that the National Bank actually does a lot of equity investment, where it actually takes an ownership share in order to help new businesses get off the ground and help them expand.

Last year, the crédit Desjardins, the National Bank, the Laurentian Bank and various other Quebec financial institutions, but not the chartered banks, set up a $100-million risk capital fund. This risk capital fund was to help ailing Quebec companies and also was to be used as risk capital to start up new companies. First of all, the chartered banks didn't contribute a cent to it, and neither did they do anything like that here. Businesses in Ontario are totally dependent on these people; we don't have an alternative.

I'll give you an example. If you say, "Well, go to the credit unions," two years ago, when my bank basically said it would probably take away my credit line, I phoned the superintendent of financial institutions, because not only were they going to take away my credit line but they were going to call one of these Small Business Loans Act loans that was in good standing. I had a track record where I had borrowed $130,000 since 1986. I had paid back all but $20,000, never missing a time, and they were going to call it on me.

I phoned up Ottawa to protest. The superintendent of financial institutions -- it was the guy's last week there; he was about to leave, so he was very candid with me -- said: "I suppose you could make a formal complaint in writing, but if you do that, then we'll contact the vice-president of your particular bank and they'll look it into, so I advise you to change banks really fast because I think you're going to run into difficulty." He said: "In fact, all the banks are the same. That's my experience here. You should just switch to a credit union or a trust company. That's where you should go, because the banks aren't interested."

I was desperate at the time. This was in 1991, after all the public sector strikes. I was really in very difficult circumstances, so I phoned 20 trust companies and credit unions in Toronto and not one was interested in my business. This idea that there's an alternative -- it doesn't exist.

I also called the Royal Bank and I asked if it would take over my account. Somebody from the bank came down to speak to me. I explained about how my business supported five people and generated, I can't remember, about $250,000 in tax revenue for the community etc. He said, "Where is your outside security?" I said: "I don't have any. I sold every last thing to put in my business to keep it running." He said, "I'm sorry, we can't do anything for you." I said: "I've been in business since 1979. I'm a valuable member of the community." He said, "My shareholders would think I'm daft if I lent to you on that basis."

So you can't just transfer accounts. It's a myth that you can just switch banks; it's almost impossible unless you've got loads of outside security and you can just start moving around. Now, with the collapse in real estate prices, believe me, nobody's got loads of outside security.

I also want to mention that in 1990 -- I quote a newspaper article -- I organized meetings with the chartered banks a couple of years ago to try to get them to stop pulling in credit lines from small business. The Toronto Star did an article and said at the time, using Bank of Canada statistics, that the banks were lending $28 billion to small businesses and they were lending $71 billion to big businesses. There was an article in the Star two days ago, and the number for the Bank of Canada is now $24 billion. The banks have been telling me and everyone else that no, they're not cutting back. Well, I find that a little hard to believe when those figures show that there's $4 billion less lent to small business in the last two years.

Once again, if you apply the Ontario rule and say that maybe 55% to 60% of it actually comes out of Ontario, because that's where a lot of their business is -- they don't have the credit unions; they don't have the strong regional banks that other parts of the country have -- then it's at least $2 billion that's been pulled out of small business lending in Ontario.

For those of you who have never been in business, a lot of people say, "Well, what does that mean, credit line?" What it means is that you have a $100,000 credit line and all of a sudden you're told it's $50,000 as of next month. Maybe you have to sell your house. Maybe you have to fire several people to get your expenses way down. Maybe you'll go out of business; that's another possibility.

Another hidden thing is that they've been terming loans. Before, you had a $100,000 credit line or $50,000 credit line and you paid the interest only each year; you'd pay your $10,000 a year interest. Well, a lot of banks have been turning these into term loans. They want to get out of small business and they just say, "No, we want out of it," so now it's a term loan; you've got to pay it off in three years. Nobody ever talks about this. What it means is that all of a sudden you've got to pay off $100,000 in three years. You're not paying $10,000 a year in interest payments; you're paying $35,000 principal plus $10,000 etc. This is what's been strangling a lot of businesses.


Why have the banks been doing this? I think it's pretty evident. You look at what's been happening in the trust industry. The Bank Act was opened up and instead of making a lot more competition, as I see it, all that's happened is that there's a lot less competition. What has happened is that banks have got out of small business lending to get into mortgage lending. Mortgage lending is very easy: You lend on a house, you do it once every six months or once a year; you don't have to bother looking at any papers except when the mortgage renewal comes up and you go back to sleep again, and you know you've got a house that's securing this. Business lending is more work; I'll grant you that. You actually have to every month keep tabs on what's going on with the business. You might even have to visit the business, perish the thought.

In the computer age, as we know, capital is flying all over the world internationally, which 10 or 15 years ago it wasn't doing. People are playing the foreign money markets, doing quick flips of money, which doesn't create anything for anyone anywhere, either here or abroad. Also, our banks are starting to do a lot of US financing. I find it kind of interesting to read the financial pages, about how one bank has really gone into the US and is financing US utilities. I think: "I don't understand. Why have they got billions" -- and it was in the billions -- "to finance the US utilities, and yet I know that this bank has been turning small business away?"

A friend of mine owns a manufacturing company in Toronto that employs 85 people; he's in the furniture industry. He had a senior vice-president of one bank come in to buy furniture, actually, in his showroom and told him that if he cared to move to the States his bank would be happy to finance him from their American offices. This is also happening.

I was also told by somebody in the banking community, somebody very senior, that another bank which bought an American bank invited a lot of its Canadian commercial customers to a meeting. They got the American bank to come up and they introduced it to a lot of their Canadian customers to see if they wanted to move abroad. With friends like this, who needs enemies?

One of the problems now is that in the 1980s the banks got away from commercial lending. It became kind of a pawnshop system. Before the 1980s, a bank would look at your business and say: "Does this make sense? Is it a good idea?" Commercial lending was also done in the community, they didn't centralize, so they would know you and they would know your business. What happened is that in the 1980s the banks centralized their commercial lending; they grouped everybody into commercial lending units. So you weren't in your community any longer and they didn't know who you were, so they'd have to look at all your real estate etc: "You pledge real estate, you get money." It doesn't really matter what you're doing, actually. If your real estate can cover the loan, they couldn't care less; they know they'll be paid back.

In a way, it means you don't have to understand how to assess risk any more, so I think there's a training gap right now. Basically, in the 1980s the banks lost the ability to know how to evaluate the businesses and now they don't have trained personnel who know how to do that, and this is a terrible problem.

I also think that the other financial institutions in Ontario are not doing their fair share. I think credit unions -- this probably sounds blasphemous -- seem to be more out to get things for their members, like cheap insurance, than really helping the province's economy. There are over 400 credit unions. They're all scattered and they tend to be ethnically affiliated or employment-affiliated, and as a small business person you can't tie into this. It's unlike Quebec where you have one credit union that's all over the place and anybody can join it, or Vancity, where once again it's non-partisan and anybody can join it.

If we're going to support credit unions then we've got to say that in return for them getting some of what they want, what's got to happen is that they have got to start being in every business district and they've got to start backing small business to the hilt.

I also think pension funds, both public sector and private sector, and insurance companies, are also not doing their job. According to friends of mine who are in investment circles, they tell me that these guys do $5-million investments at a time -- they won't do anything less; it's not worth their while, of course -- so what happens is that they're just busy flipping shares of big companies back and forth. When you look at it, what's that money being used for? To automate and throw people out of work. These guys are dehiring; they're not increasing investment to create new jobs.

Finally, to conclude, what must be done? I would like to see an Ontario investment act. I realize that banks are under federal jurisdiction, but I don't think that's any excuse for people to say, "Oh, we can't do anything." Of course we can do things.

I think all financial institutions taking deposits in Ontario must be required to lend out a minimum percentage of their deposits to small and medium-sized businesses that generate jobs. I'm not talking about real estate investments; I think that should be totally excluded.

In the United States, they have something called the Community Reinvestment Act where, by law, banks must lend out a minimum of 16% to community economic development groups and minorities. They're not forced to make loans if nobody is asking for the money, but if somebody comes to them and they haven't met their target and it's a good proposal, they are not allowed to turn it down.

If we liaise with the other provinces, I think they would follow suit as well and I think it should be a general pressure of Ontario with the other provinces, because I think the federal government basically is not doing its job with the banks. They've allowed them to do whatever they want to, just give them whatever they want and never make any conditions.

I think we might consider strategically targeting certain industries that we want to be the basis of our economy. Perhaps the Ontario government might do a kind of SBLA where we guarantee the capital on those loans, and it should be for working capital. I should explain that under the Small Business Loans Act that everybody is raving about right now, you cannot borrow working capital for that. You can borrow money to buy computers that are made in Japan and you can borrow money to buy track lights that are made in the States, but if you want to borrow money to hire Ontarians who are out of work, "Sorry, you can't do that," yet that would have the quickest payback of all to the government.

Here, the banks were lending $28 billion to us two years ago and it's now $24 billion so they've cut our lending by $4 billion, and now in the newspapers you keep on hearing, "Oh, we've doubled our small business lending." They went from $400 million to $800 million. While they've increased their 85% government-guaranteed loans by 100%, by $400 million, meanwhile they've decreased the loans that were on their own ticket, the working capital loans, by $4 billion. Once again, nobody talks about that.

I would like to see pension funds and insurance companies have to invest 2% of their assets in new startup companies. I think there's a precedent for this. They used to have something called the basket clause for pension companies, where they were allowed to invest I think 6% in real estate and 6%, like mad money, in anything else: art works. Believe me, 200-year-old works of art don't generate employment for people. The idea was: "You can play around with this little bit. The rest has got to be very, very solid, but this you can do and it won't hurt things."

In terms of my own business, if you asked me to stick 2% of my inventory into something -- I have $450,000 of inventory in my store so if you asked me to take 2%, that's $9,000 -- I wouldn't fight because I would know that no matter what happened, even if it were a total bomb, it's not going to kill me. In fact, the experience of startup businesses in Canada -- this is according to the banks, actually -- is that after the first year 75% succeed, and after three years 50% are still there. So probably, at worst, what would happen is that you wouldn't make money but you wouldn't lose money.

I think the economy is everyone's responsibility and not just individual entrepreneurs' responsibility. The current situation, as it stands right now, is on the head of an individual entrepreneur. If you want to start up a business you are expected to put your house on the line, against a demand loan that can be called on you, so you could lose your house, which is a long-term asset, and it could be called on you in a matter of days. Meanwhile, if you lose it, then you don't qualify for UIC or any of these other social programs.

We're asking people to put their head in the noose to rescue the country, to rescue Ontario. My own experience is that when you start a business it takes three to five years to make any profit. Meanwhile, what happens is that the government wins on the first day: The first person you hire, in the first year the government saves $12,000 in UIC or welfare and they've probably got minimum $5,000 in tax in, so it's a win of $17,000 minimum to the government for every person you hire. Meanwhile, you are expected to take the whole risk, and I don't think that's right. I think banks, trust companies, credit unions, public and private sector pension funds and insurance companies have got to start to put their necks on the line a bit too, because they get the benefit too.

I believe public sector salaries are going to continue going down. I don't think we've seen the end of the 5% decreases. If we don't rebuild this economy, it's not going to be 5%, believe me, it's going to be much more, so it's in their own interest to get this economy going again. Thanks very much.

The Chair: Thank you. We have some questions. Mr Wiseman has indicated that he wants to ask a question.

Mr Wiseman: Thank you. I found your comments to be right on the mark. My experience in my constituency office is exactly the same as yours, that constituents who have had long-running businesses have had banks come to them and say, "If you don't dump your business mortgage to somebody else, we're going to pull your line of credit," and we've had to scramble to rescue them.


I think the real culpable problems in terms of the banks are the changes that have been made since 1967 or 1968, when the first change that was made was that the central bank allowed banks to charge interest rates above what used to be capped at 6%. That then allowed them to go completely nuts in terms of charging interest rates, and then you start to see what happens to businesses in terms of the interest rates.

Just lately, they've removed the reserve ratios that used to be in existence, where you had to have a certain amount of capital. You would have thought that would have been a positive thing for banks in that they could manufacture what's called M3 money in an infinite amount; they could go for ever, theoretically. Also, they wouldn't have to call loans on businesses that were going under, so you would have thought that that would have been a really positive thing -- except for one thing: The central bank's interest rates are so high on government and treasury bills that banks now are getting into the market of lending money to governments, and to get that money, which is at a higher return, they're pulling it out of businesses like yours.

The central bank has had absolutely no response in terms of those criticisms. In fact, as late as yesterday, it said it was going to continue to do this anti-inflation stuff. The statistics will show that as bank interest rates increased, so did inflation. The two are related; one causes the other.

I agree with you, and in terms of what we should be doing provincially, I'm not exactly sure what the relationship is of the credit unions. I think there are some restrictions on them being able to lend to businesses, so I think there's a problem. There is a committee under Steve Owens that's looking into this, reform in that sector.

The fact that there isn't money available for small business I think you have very, very clearly articulated, and I think you've pointed the finger very clearly at what is the problem, so I thank you for your presentation. If you want to comment on that, there must be a question in there somewhere.

The Chair: "Don't you agree?"

Ms Bellan: I agree with everything you said. I'd just like to add one thing. I think we should really consider setting up a very strong credit union in Ontario. There's $160 billion worth of deposits available. Why don't we get them into provincially run institutions that really give a damn about the province? I think in Alberta they've got the savings branch or treasury branch, which is a POSO -- I spoke to somebody from Credit Union Central and they said they'd fight that to the teeth. But the thing is, if they're not going to lend to small business, we've got to have somebody who's going to lend to small business.

Mr Wiseman: So you would support the expansion of the Province of Ontario Savings Office into a loan-giving institution.

Ms Bellan: I certainly would, and I would say that they can't do mortgages. So they can't do the easy stuff, and that counterbalances the fact that they're government-supported perhaps.

Mr Joseph Cordiano (Lawrence): I don't really have too many questions. I would simply say that in terms of this program, as contemplated by the government, we're really talking about a $30-million injection of capital that's available under Bill 40. Obviously, small business certainly has a problem raising capital, particularly equity capital. Venture capitalists are around but the requirements are pretty stringent.

Your comments about the banking system are relevant, and I think it's important for us to understand that and how difficult it is for small business to actually access startup capital and then capital for expansion, and working capital of course is always necessary for small business.

Do you think this program should be expanded? Do you think, as it is contemplated right now as Bill 40, it is a viable option?

Ms Bellan: I like the program as a rural development initiative, but then I sit and I think about it in Toronto. I think, I live in one part of the city and my business is in another part of the city. Who are all the committees? Are there going to be 50 different committees in Toronto? If it's in a small place, then the town centre's there and everybody knows everybody there and it's all together in one place, and to me that makes sense; I think it's a very good rural initiative, for small towns and all that. But in larger urban centres I think the logistics are rather difficult.

Also, as I understood the program, they were asking people to come and put their deposits in and the government would guarantee their money. But to me, as I say, it's like this Ontario Hydro analogy; it's reinventing the wheel. This is going to take years to do. It's not that you shouldn't do it, but it's going to take years to do when you've got all this money sitting there that's people's money and if you just legislated it properly it would be used properly now.

Mr Cordiano: To me, it's one more layer of quasi-bureaucratic functioning which is almost unnecessary. You'll have these boards that are going to make decisions by virtue of the fact of the people who are going to be involved with them. The banking institutions will be involved in the actual lending, but it's another layer that I think is most unnecessary and won't allow for great efficiencies in the system. Because it's only $30 million, probably that won't be a difficult problem, but my point is that it won't have much of an impact on anything.

Ms Bellan: I agree with you. I'd like to give you an example. A friend of mine owned a furniture-making company, more a medium-sized business than a small business in Kitchener; he had 500 employees. Maybe some of you have heard of this; I've written about this. What happened is that in 1991 -- was that Meech Lake, or was it 1990? Meech Lake was in 1990, I guess. In March of 1990 --

Mr Wiseman: Meech Lake was in 1988.

Ms Bellan: No. Meech Lake?

Mr Wiseman: Definitely 1988, the 1988 election.

The Chair: Son of Meech Lake was 1990.

Mr Wiseman: It was signed in 1989.

Ms Bellan: There was something in March of 1990, the Meech Lake Accord.

Mr Wiseman: Carry on.

Ms Bellan: Anyhow, what happened was that at that point everybody started to hold back on paying people. I know that's the first time my business started to slip. What happened is that his customers held back on their payments to him. So what happened is that he couldn't complete his work in progress because he couldn't pay his suppliers for what he owed them. Because he didn't pay them, they wouldn't ship him more so he couldn't complete what he was making.

He had a full order book; he had taken over the company with his brother from Electrohome. They had redesigned the furniture and they had orders for furniture from all over Canada and the States -- there were a lot of hotel orders -- but because he got in this cash flow crisis, he couldn't keep going. He went to the Ontario government, he went to the Liberals at the time, but it was at the time of the election and because it was the election, nobody wanted to touch him with a barge pole, and then when the NDP came in also nobody wanted to touch him with a barge pole. So he went under in July of that year. That's how fast it was. A 30-year company with 500 employees went down that quickly.

I want to explain the numbers because I think it illustrates your point. He had a line of credit of $2.5 million and he employed 500 people. The interest rates at the time were 15% so that was like $375,000 a year, which he was capable of paying but, as I say, everybody was holding on for that extra 60 days, so he was caught. After he went under, for the first year I know pretty well everybody remained unemployed, so that's 500 people on UIC getting $12,000 a year. That works out to $6 million paid out to his employees.

In year two, I believe most people were still unemployed -- there are not lots of jobs for woodworkers in Kitchener -- so let's say that's $10,000 a person on welfare; most of these were heads of families who worked at this business. That's $5 million in year two. So that's $11 million that was paid out to these people.

His employees used to pay tax. They used to pay $5,000 apiece a year; multiplied by 500, that's $2.5 million a year they used to pay in tax. For two years, that's 2 times $2.5 million, that's $5 million. So $6 million and $5 million is $11 million, and $5 million is $16 million. He also used to pay a quarter of a million dollars in tax to Kitchener, so that was another half a million lost.

So my calculations when I wrote about this -- it's higher now, but at the time -- the people of Canada lost $16.5 million because this company was allowed to go under.

I actually phoned up the bank that did it to him and that wouldn't back him up and I got very angry at them.

Mr Cordiano: What was his outstanding loan that they called?

Ms Bellan: It was $2.5 million.

Mr Cordiano: It reached $2.5 million.

Ms Bellan: That's right, it was $2.5 million. I'm saying he was capable, but -- I phoned and I berated them. I spoke to the senior vice-president who was in charge of the loan and I explained the logistics of it all, and I said, "How much would have taken to save this company?" Basically, he had orders; it was just this temporary cash flow crisis. He said: "Oh, $2 million. That's what it would have taken."

It seems as though we're so stingy about lending to small business or medium-sized businesses: "Oh, you might lose the money." Of course, he lost two million of his own dollars. He's going to go and just let that go. You might lose the money, but --

Mr Wiseman: They lent $2 billion to Reichmann.

Ms Bellan: Yes, and this was probably employing almost as many people as Reichmann, actually.

The thing is that we're going to lose $16 million of public money, so it's no problem. I find it interesting that if you go on UIC, you're given $12,000, and that's as if $240,000 were invested and you get the interest off that: "That's no problem; we'll give that to you." If you go on welfare you get $10,000, so that's as if you have access to the interest on $200,000. But if you put up your own stuff and you want to borrow, we say, "Oh, no, you might lose it." We're nuts.

Mr Cordiano: That's a very good point. We are nuts.


Mr Jackson: Susan, thank you for an absolutely refreshing and perhaps the most substantive, global view of the work before the committee at the moment. You cause us to reflect on past deputants who arrive in the same position you're in at the moment, supporting the program but finding difficulties with the proposed program.

You cause us to reflect on a couple of things, but the area you touched on, because no one really seems to be talking about it, is how successful Quebec is becoming with a sense of its own nationalism, where nationalism isn't such a negative in Quebec because it has a sense of survival in promoting everything: their birthrate, their language and their economy. It's really quite a phenomenon to watch.

It's too bad our province's sense of nationalism is defined as being against something else as opposed to promoting something. I just want to tell you, I take from your words the necessity to redirect that attention, and nobody seems to be participating in that debate. Economically, it seems to be too simplistically aligned to free trade, when its problems are far deeper.

I read today in our clipping service that Barry Crichton writes about the teachers who've now got their portfolio up to $30 billion, and they're eyeing Europe and the US. That's exactly where they want to airlift their money. All the office buildings they've bought have become shaky and now they're going to be investing in the US.

The only question I might have for you is that we have received input on a fear about this bill, that it may be too urban-focused and not rural-focused. There's been some inference, but not confirmation, that in the early stages of the development of this new approach as set out in this bill that it will have an urban focus and that there are not as many pilot projects being considered as were perhaps possible. You may wish to further comment on that, but I want to thank you for bringing it down to your level as a borrower and a businessperson and just whose needs we're actually going to be meeting with this bill.

Ms Bellan: I'd like to comment on what you say about the teachers. Part of me says that I feel as though there is group in society who feel that everybody's obligated to them. As one who carries a lot of responsibility but seems to have nobody obligated to me -- when I ran into difficulty two years ago at the time of the TTC strikes, my sales went down by 70% and I couldn't pay my rent for the first time. When I phoned up the Ministry of Labour and complained and said, "I want you to send these people back to work," I got a whole thing about collective bargaining and the rights of these guys and all that, and I said, "But I'm about to lose my shirt, I'm about to lose everything, I'm about to be thrown on the street and lose my house and all that," and they said, "Oh, no, these guys have their rights."

I think the problem is, as I said, that the economy is everybody's responsibility, and I don't think that certain groups should feel they're entitled to get 70,000 bucks a year, even 30,000 bucks a year, but not have to sink anything in. For me to get what I get out of my business, everything I have is sunk into my business, and I feel as though Ontario is like these people's business, in a way. That's where they get their money and they bloody well should have to put a lot of money in to keep it strong. That's that.

As far as the urban-rural thing, I guess I just took a different understanding of it. I heard -- who was it in cabinet? -- Frances Lankin and somebody else present it, and when I heard them talk, it sounded so rural to me. I went to a local MPP riding association meeting, and when they went into all the logistics it really sounded very rural-oriented to me. I know that in Manitoba they have the GRO bonds, and that's a very rural thing. I tried to think over the dimensions of actually having it happen in Toronto: How would you organize committees? Who do I know? Do I call my neighbours together?

Mr Cordiano: They have a real sense of community.

Ms Bellan: Yes.

The Chair: Thank you. Unfortunately, your time has expired. We've enjoyed your presentation.

Ms Bellan: Thank you very much.

The Chair: For the committee members, the Chair would appreciate amendments that we might be proposing on Tuesday morning when the committee next sits. It's not absolutely necessary, but it is a courtesy to other members. It is useful to have distributed both the government and any opposition amendments that they have thought they might put. If not, that's fine, but it's just helpful.

Mr Hope: During the last presentation, an interesting thought went through my head. I remember old Wiseman, a farmer in my community, telling me something recently, and it just sparked because you were talking about the banks paying in.

I believe a while back governments used to tax banks on business transactions. I'm wondering if there are any calculated numbers of income through that process, because we could use that money to reinvest to help business. It's bridge financing that seems to be the businesses's problem, to get bridge financing during transition. I believe it would be in the Ministry of Finance because I believe it was the province that did it, and it was the Conservatives who removed that tax. I'm just wondering if they have some data about annual income that was coming in on that process.

The Chair: I'm sure that research will see what they can do. Thank you, Mr Hope.

We will see members of the committee Tuesday morning at 10 o'clock.

The committee adjourned at 1206.